For safe retirement, first cut spending

This Jan. 11, 2013, file photo shows the Social Security Administration's main campus in Woodlawn, Md. A new congressional report says the Administration has closed a record number of field offices, even as millions of baby boomers approach retirement. Seniors seeking information and help from the agency are facing increasingly long waits -- in person and on the phone.
The Associated Press

This Jan. 11, 2013, file photo shows the Social Security Administration's main campus in Woodlawn, Md. A new congressional report says the Administration has closed a record number of field offices, even as millions of baby boomers approach retirement. Seniors seeking information and help from the agency are facing increasingly long waits -- in person and on the phone.

More than a third of all U.S. adults, 36 percent, have no retirement savings at all, according to a survey out this week from the personal finance website Bankrate.com.

It was just the latest sobering piece of data to hit my radar.

One reason retirement accounts are so low is that savings are low, period, with the median American household saving precisely nothing, according to federal figures. Put another way, half of all households somehow spend more than they earn in a given year (generally by running up debt), while the other half spend less, giving them a chance to save.

Call me an incurable optimist, but I see great cause for hope in these otherwise scary numbers.

Here’s why: Our national savings and retirement problem boils down to a spending problem.

Certainly, this is a serious macroeconomic conundrum. If everybody suddenly cut spending, incomes would fall as employers reacted to falling demand, triggering a deflationary cycle that’s devilishly hard to break.

However, for individual families, realizing you have a spending problem can be fundamentally liberating.

Aside from plowing scarce cash into education, most workers can’t do much about whether they get a raise this year. And they really can’t control investment markets.

Spending? That’s another story. It might be less than comfortable, but people can always do something to cut spending, with the important exception of those already living in extreme poverty.

Of course, the admonition to be a thrifty ant instead of a high-living grasshopper has been a finger-wagging moral lesson since Aesop sat around the fire in ancient Greece.

Yet in modern America, you don’t have to become a better person to put enough eggs into your retirement nest. You just have to master arithmetic.

And it’s possible even in high-cost San Diego, where the middle-class is fully capable of socking money away without living like monks, according to an analysis of federal income and expenditure data released in May by Interest.com, another personal finance outfit.

In San Diego, the median after-tax income was $48,755, a figure that included paychecks, pensions and self-employment earnings. As for spending, the median was $44,268, including housing, food, transportation and the complete range of reported expenditures.

That leaves about $4,500, or 9 percent of income, available for saving each year. The trick is to actually save, which means new habits for many.

“You can’t find $4,000 (a year) in San Diego by skipping a few lattes,” said Mike Sante, managing editor of Interest.com, which hired an economist to crunch the numbers. “You have to look at the big expenditures in your life.”

Housing and cars are the biggest for most people.

Wringing real savings from a paycheck requires driving an old car longer. Or buying used instead of new; the Accent instead of the Explorer.

As for housing, I feel your pain. When I moved to Laguna Beach from Kentucky in 1995, I shared a room for six months with a guy from Boston who snored. Then I shared a house for three years.